In our weekly series, readers can email in with any question about retirement and pension savings to be answered by our expert, Rachel Vahey, head of public policy at investment platform AJ Bell. There is nothing she does not know about pensions. If you have a question for her, email us at money@theipaper.com.
Question: Over the past 20 years I have started three or four different pensions with different employers. Some of these I have lost track of and I am not entirely sure where they are. If I find them, can I combine them altogether in one place? And if so, how do I do it?
Answer: Automatic enrolment into pensions can be marked as one of the UK’s most successful social interventions.
Since 2012, more than 11 million people have been automatically enrolled into their workplace pension if they are aged 22 or over and earn more than £10,000 a year.
People can opt out if they want; but most stay, and so millions are now saving for their retirement, many for the first time.
The government estimates the average person has 10 jobs in a lifetime, so that could mean building up 10 different pensions. And that’s where it gets complicated: 10 different pension schemes to keep track of, probably all with different providers.
It’s no surprise many people decide to combine their older pension plans into one. Doing so can offer many advantages.
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It makes it easier to manage pension savings if they are all in one place, and to work out if your pension is on track to get the income you want in later life.
There’s a lot less admin and paperwork such as statements to plough through, and only one log in to remember.
Transferring to a Self-Invested Personal Pension (SIPP) could offer greater investment choice than what is available in many workplace pensions and possibly more options for how to access your pension savings. And finally, combining pensions may mean potentially lower charges.
The first step to combining pensions is to track them down. And that probably means digging out log-in details and paperwork. One idea is to go through your work history and match the pension to the job.
If there are any missing, then you can get in touch with old employers to check if they paid into a pension. If going back is difficult – perhaps the employer no longer exists – then there is a free pension tracing service available from the Government.
Before deciding to combine pensions there are a few checks to do beforehand. Some older style of pension plans will apply a penalty if pension savers move their money away before a set date.
Others offer valuable benefits such as a guaranteed annuity rate – a special deal on prices if the individual chooses to buy an annuity with the fund – or they protect some key elements such as the amount of tax-free cash or an earlier access age.
This doesn’t mean that people cannot transfer their pensions. But they need to be aware of the consequences of doing so and consider whether that is the outcome they want.
If your employer is still paying into the pension, then make sure that wouldn’t stop if the pension was transferred. Some pension schemes allow a ‘partial transfer’, which means employer contributions can continue; but some don’t.
If you have a defined benefit pension scheme, then it’s likely you will have to get regulated financial advice before you can transfer these valuable benefits.
You will also want to check the charges you pay on each pension scheme, where they are invested and the growth on your investments, and compare these to the pension plan you want to transfer to.
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Once you have worked out which pension schemes to transfer, then all you have to do is give the details to your pension scheme.
However, to make life even easier, some providers now offer a pension finder tool. This cuts out some hard work.
All you have to do is give your provider details of your past employments, and the provider will track down the old pension plans. They will then check and let you know if there are any reasons you may want to pause before transferring – for example, if there are any exit penalties.
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